The Collapse of Global Oil Prices

The accurate forecast of Winter Storm Jonas along the U.S. East Coast showcased the ability of meteorologists to anticipate how several powerful and independent dynamics would interact over a few days. Two separate low pressure systems—one gliding across the Midwest, the other forming in the Gulf Stream–had to converge at exactly the right time and place to produce a significant storm. But the precipitation would have only been rain if a wedge of frigid high pressure had not also been punctual to the party. The forecasts were successful because the weather analysts focused on how these multiple energies would converge at some future point; to borrow the appropriate ice hockey aphorism, they focused on where the snow would go.

A storm of a different nature is currently hitting world markets and national economies. The breathtaking collapse of world oil prices has caught many—but not all—observers by surprise. Governments in countries as diverse as Russia, Saudi Arabia, Angola, and Nigeria—which based their national budgets on triple digit oil prices—are now forced to choose between sudden austerity or rocketing debt. Other countries, such as India and South Korea, seem at first blush like big winners; their economies do not rely on the export of oil or other commodities, and they now pay much less to power their factories and services.